Silver And Covid-19, Capitalism’s Black Swan

Over the past few weeks and months, there have been seismic changes in the way people are thinking of markets – and the concept of markets – generally.

As evidenced by movements in the Federal Reserve’s sale and repurchase facility from last September, which has resulted in the TARP balance sheet reaching a record of $6,000bn and at a record rate of over $630bn/month since the year began, there are ‘issues’ with all markets – in as much as markets are markets with ‘monetary’ fiat.

The whole concept of ‘owning shares’ is being questioned by those who’ve been taught to remain braindead by generations and generations of ‘economics teachers.’ It’s in this context that metal futures – especially of gold and silver – are moving apart from other ‘securities.’ May silver returned a co-basis reading of +0.2% on 10th March 2020 – i.e. actionable backwardation – before falling to its current level –12.3%. This would ordinarily indicate a substantial move out of silver – and indeed silver’s ‘fiat price’ fell from $17/oz on 10th March to $12 by 19th March. It should be noted that over the same period, the Dow Jones Industrial average fell from 25,001 to 20,087 – ‘value’ never to be recovered, allowing for ebbs and flows.

Is there a true ‘reduction in demand’ for silver? Those who hold ‘securities’ are trying to switch from those that will vanish (‘shares’ and ‘bonds’) into ones that will not vanish, or at least ‘one side of which’ won’t vanish – and silver/gold futures/forwards, amongst other goods, fit that requirement. This is evidenced by looking at changes in COMEX system of repositories’ inventory, which gives a clearer picture as to the true ‘demand for silver.’

When registered silver declines in conjunction with silver being brought into the COMEX system, managers are worried about their maintenance of exchange between ‘futures’ and ‘physical.’ This can only be for ‘increased demand for silver of itself †.’ If this happens repeatedly then there’s ‘repeated demand for silver.’

Precisely such a situation is occurring in silver, as can be seen in the ‘COMEX silver stress indicator’ chart – which tallies such demand. It has remained elevated whilst May silver’s co-basis has fallen sharply. Demand for silver of itself is there and growing and will mimic interest in the automatic favourite of gold. The gold/silver ratio, currently at 111X, provides an excellent opportunity to switch from gold into silver.

• Demand to exchange not only ‘base’ fiat but also other securities traded for base fiat (stocks/bonds) – ‘ephemeral securities as ephemeral as fiat’ – for gold/silver is occurring.

• Whilst not visible through silver’s price, it is through mechanics of market settlement and will eventually be visible in silver’s price… and ‘the price’ of all metals.

† Such an issue of ‘maintenance of exchange between futures and physical’ (i.e. ‘default’ in all but name) happened in COMEX gold, as reported on 24th March: https://www.kitco.com/news/2020-03-24/CME-resolving-physical-gold-squeeze-with-delivery-of-100-ounce-400-ounce-and-1kg-bars.html 

The present order is failing. A better world is coming. Be patient.

Buy gold, buy silver, have faith

Darryl Robert Schoon

www.drschoon.com

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